X

Sign Up

or

By signing up I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Sign Up

Sign Up With Facebook, Twitter, or Google

or


By signing up, I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Log In

or


Don't have an account? Sign Up

Forgot Password

To reset your password just enter the email address you registered with and we'll send you a link to access a new password.


Already a PT member? Log In

Don't have an account? Sign Up

  • Property-a-holics

    Kate Faulkner, Property Analyst - Buy smart!



    Welcome to the next instalment of our "Smart Landlord" 2019 campaign, where we present a guest article by highly respected property analyst and commentator, Kate Faulkner, who is also a member of Property Tribes.

    You've heard of smart phones, smart highways, smart meters ... well, this month, to celebrate our 10th anniversary, Property Tribes champions the concept of the "smart landlord" as we believe that is the profile of the landlord who will survive the current challenging market conditions and taxation and regulatory landscape.

    Smart things are adaptive to change, problem solving and always seeking out efficiencies to operate more smoothly and at a higher level, and that is how the smart landlord approaches their business.

    In the context of the "Smart Landlord", Kate writes:

    It used to be pretty easy being a landlord. Tenants would be queuing for properties, agreements were just a few pages, there were some laws you needed to abide by, enforcement hardly existed and property price growth was often in double digits.

    Looking at the market today it couldn’t be more different:-

    1. There are over 400 rules and regulations to abide by – many of which aren’t that easy to understand or implement
    2. Tenancy agreements constantly have to be reviewed due to new laws being passed or existing ones added to, with the government recommended AST now running into 50 pages
    3. Licensing has introduced an unbelievable amount of complex administration for HMOs, with little seemingly relating to the original rationale: to reduce fires in shared homes.
    4. Fines for breaching letting rules are running into hundreds of thousands of pounds and even jail terms for landlords
    5. Rent rises are typically below inflation, running long term around +2% per annum versus +3% inflation rises - meaning many landlords are taking a real ‘pay cut’ each year
    6. Capital growth is, for some, non-existent or at best around 3% a year versus previous gains of 6-8% on average since 2000. Some city centre flats are still selling at tens of thousands of pounds less than they were bought for
    7. Tenant groups are becoming more proactive with ‘anti landlord and letting agent’ demonstrations
    8. Tax rises have made profitability in buy to let more difficult, if not impossible in some areas, leading to a drop in landlord numbers and sell offs, causing a rise in tenant evictions
    9. Caps and changes to benefit payments has led to landlords (both social and private) losing millions of pounds in rent
    10. Being a property investor or landlord is seen as something to be ‘ashamed of’ rather than being able to be proud to put a roof over people’s heads

    So it’s pretty clear from this list, the only way to move forward in the world of landlording is to be ‘smart’.

    From my perspective, this needs to start before any properties are bought.

    I still talk to far too many people wanting to get into buy to let who haven’t a clue what’s happening in the property market, some still believing now the outdated rhetoric that ‘property prices double every 10 years’, which for many areas and properties hasn’t happened now since 2005.

    Many more don’t seem to understand that property can make money, whatever the market is doing, thanks to the ability to leverage, with many investing in cash for the long term, not seeming to appreciate that with the recent tax changes, some financial investments may well give better, less risky returns.

    And in my view, far too many think it’s still OK to self-manage or use a cheap agent with little or no effort to keep up with the law, thinking that a defence of ‘I didn’t know about that’ will suffice should things go wrong.

    See - How to vet a lettings agent ... 12 questions to ask

    My top tips for being a smart landlord in 2019, whether you’ve been doing it for years or are investing for the first time is to approach this as a financial investment first and foremost, then understand potential returns now and in the future and finally, appreciate the complexities of letting legals.

    You also need to take a very long term view - 15 to 20 years - and consider how your property investment may perform over such an extended time frame.

    It's vital to do intense due diligence on any property, and consider how you are going to exit that investment at the end of your landlord career.  That means visiting the property several times, at different times of the day and night, and walking the streets to get a feel of the area.

    If there is a train line at the bottom of the garden or its impossible to park on the street and there is no other parking at the property (for instance), then that is going to put tenants and owner occupiers off for the next 20 years!  For a low risk landlord life, always buy a property that does not have any "turn-off's" and appeals to owner/occupiers, as, ideally, you want to be able to exit to that type of buyer at the end in order to realise the best possible price.

    This means not just ‘finding a deal’ that you think works for you, or assuming the property you have is delivering the best return versus a financial investment, but making sure it’s maximising the return on the money you have invested.

    Some questions to ask:  Is the property’s growth rising faster than inflation each year? Is the rental income keeping up or surpassing inflation?

    Many landlords I meet don’t even increase the rent each year to tenants, allowing them to stay in the property without an increase for five or more years. Social landlords typically increase rents at inflation ‘plus’ 0.5 or 1% which allows them to pay for repairs and property upgrades that are much tougher to fund otherwise.

    And if you haven’t invested yet, will the property you want to buy achieve inflation busting capital growth and rent rises?

    If you are investing for income, then HMOs are a popular way to do this, but with hefty license costs and onerous paperwork to secure a licence, plus an increased risk of fines, is this really the right way to secure an income? With Brexit on the cards, is there the demand for HMOs or are they over saturated, in your area?

    Would commercial property or holiday lets not be better?  Or even a financial fund which doesn’t attract such high rates of taxation?

    For me, a smart landlord in 2019 knows not only their own property market like the back of their hand, but has a very clear idea of what properties in their area are in short supply now, but will remain so in the future.

    They will understand what drives the local economy (and what threats exist) and will always have a ‘plan B’ if (and when) the area /UK heads into recession again.

    Things like the ‘local plan’ should be a ‘must read’ to help understand population changes as knowing whether it’s 20 somethings or 70+ somethings that will be renting from them in the future is going to be vital to make sure the existing or future property portfolio meets local demand.

    Finally, knowing the real value of a good agent or understanding the need to belong to a landlord association such as the Residential Landlords Association (RLA)  is also vital.  Property Tribes members can enjoy a 25% discount off membership, so there is no excuse not to join!

    Those that think they ‘save money’ by not getting expert legal help rather than saving money by securing expert legal help for me are "un-smart landlords" - it only takes one fine or prosecution these days to realise that legal breaches are one of the biggest risks to investing in buy to let.

     For more information on prices, rents and understanding your local market, visit http://www.propertychecklists.co.uk 

    SEE ALSO  -          5 ways to assess an investment property without leaving your house

    UP NEXT -              Insider insights on "game-changer" PRS report

    DON'T MISS -         Pick ten streets strategy

    NOW WATCH:

    0
    0